GLOBAL MARKETS-Oil surges on Yemen air strikes, stocks tumble

(Updates ahead of U.S. market open)
* Oil rises on fears of Middle East supply disruption
* Stocks fall in Europe and Asia, energy stocks rise
* Dollar retreats versus yen, euro; rouble gains
* Wall Street set to open lower after three days of falls
By Marc Jones and Nigel Stephenson
LONDON, March 26 (Reuters) - Escalating tensions in the
Middle East as Saudi Arabia and its allies launched air strikes
on Yemen pushed oil prices up as much as 6 percent on Thursday,
and sent world share markets tumbling.
In the currency markets, the dollar fell against traditional
safe-havens the Swiss franc and the yen after
warplanes from Saudi Arabia and other Arab countries struck
Shi'ite Muslim rebels fighting to oust Yemen's president, and
bombed the airport at the capital Sanaa, in a move seen as a bid
to check Iranian influence in the region.
Iran denounced the attacks as the Saudi military also
targeted the Iran-backed Houthi rebels besieging the southern
Yemen city of Aden.
Arab producers ship oil via the narrow Gulf of Aden before
heading to the Suez Canal and to Europe, and the price of Brent
crude spiked more than $3 a barrel to close to $60, a 2 1/2-week
high before steadying at $59.
U.S. crude saw a similar jump as it topped $51 a barrel.
Wall Street was expected to see the S&P 500 and the
Dow Jones Industrial start 0.7 percent in the red, adding
to three days of falls that saw both indexes drop below their
2015 starting levels on Wednesday.
"The air strikes in Yemen have really created a risk-off
mood," said Rabobank strategist Philip Marey. "We have had a lot
of upbeat data (recently), so maybe this was bound to happen
with the first major negative surprise we had."
A vertiginous slide in oil prices, from more than $115 a
barrel last June to a low of $45 in January, has been a major
driver of financial markets in the past year and a key factor
driving global interest rates down and stock markets up.
European shares followed Asian stocks lower and were showing
no sign of a rebound as the start of U.S. trading neared.
The pan-European FTSEurofirst 300 index was down
1.5 percent. In Germany, a major industrial economy heavily
dependent on oil imports, the DAX index fell as much as
1.8 percent, while shares in Athens took a 3.5 percent
dive after three days of gains as Greek worries returned.
Middle East stocks were mixed as investors weighed the
negative implications of the tensions against the benefit of a
rise in oil prices. Dubai's DFM index dropped more than
3 percent but bounced back to be off a modest 0.8 percent while
Saudi shares made gains of 0.4 percent.
SHUFFLE TO SAFETY
As the dollar fell, ECB data showing signs that bank lending
in the euro zone is now gradually improving helped the euro to
consolidate its recent gains. It hovered just below
$1.10.
The dollar has been on the rise for months on the prospect
of a first U.S. interest rate rise since 2006 but its ascent has
lost steam since the Federal Reserve last week made clear it was
in no hurry to tighten policy and after weak data.
"We have been talking about it being the beginning of the
end and that's still the way I would characterise it," said
Daragh Maher, currency strategist at HSBC in London.
"What it will have done, I think, is raised some doubts in
people's minds that the bull run is not without end."
Oil's rise was a fillip for the Russian rouble, which gained
1.4 percent to 62.14 to the dollar. Russia is a
major producer and the oil price is a key factor in government
finances.
Gold also rose, climbing roughly 1 percent to $1,205 an
ounce, supported by the weak dollar and Middle East
tensions.
Yields on German government bonds, the benchmark for euro
zone borrowing costs, nudged lower, though the prospect of more
expensive oil sparking inflation limited falls. Ten-year Bunds
yielded 0.225 percent, down fractionally on the
day, while equivalent U.S. yields inched higher.
"The impact of Saudi Arabia's air strikes in Yemen is
complex," said Mizuho strategist Peter Chatwell.
"It's geopolitical risk, so Bund bullish, but the rise in
the oil price should push expectations of headline inflation
higher over the coming months."
(Additional reporting by Shinichi Saoshiro in Tokyo, Henning
Gloystein in Singapore, Alistair Smout, John Geddie and Patrick
Graham in London; Editing by John Stonestreet and Susan Fenton)